James O’Leary, Partner & Head of Infrastructure & Real Assets at StepStone, on infrastructure outlook for 2024-2026

In a recent fireside chat hosted by Giovanni Amodeo, James O’Leary, Partner & Head of Infrastructure and Real Assets at StepStone Group, delved into the evolving landscape of infrastructure investment, focusing on the outlook for 2024 to 2026. O’Leary, with a robust background in managing diverse asset classes, highlighted the enduring appeal of infrastructure investments due to their defensive qualities and resilience during economic fluctuations.

Throughout the discussion, O’Leary emphasized the sector’s adaptability in the face of rising interest rates and inflation, noting the proven correlation between infrastructure performance and inflation. He pointed out the sector’s robust response to recent challenges, including the pandemic’s impact on airport investments, which have since recovered and even surpassed pre-COVID profitability and traffic numbers.

Looking ahead, O’Leary identified significant sectoral tailwinds, including the rise of digital infrastructure and the global push towards energy transition and net-zero goals. He also touched on the transformation in transport and logistics investments, driven by trends like deglobalization and onshoring.

The conversation also covered the expansion of the infrastructure investment landscape, with a notable increase from a handful of managers to over 700, managing a diverse array of funds aimed at raising close to $700 billion. This growth presents new investors with a broad spectrum of opportunities, albeit with the challenge of selecting the right funds to match their strategic goals.

O’Leary further discussed the integration of environmental considerations in infrastructure investment, particularly the challenges and opportunities in data storage and energy requirements for digital infrastructure. He underscored the importance of downside protection in investment strategies and the potential for technological advancements to significantly influence infrastructure and related sectors.

In conclusion, O’Leary reiterated the sector’s potential for continued growth, driven by increasing investor allocations and the critical need for capital to support ambitious global infrastructure and energy transition projects. His insights underscore the dynamic nature of infrastructure investment and its critical role in shaping sustainable, resilient economic landscapes in the coming years.

Key timestamps:

00:09: Introduction
00:29: James O’Leary’s Background
01:19: Pitching Infrastructure to Investors
03:09: Defensive Qualities of Infrastructure Assets
04:07: Sectoral Tailwinds and Opportunities
06:09: Changes in Infrastructure Investment Opportunities
07:28: Unique Differentiation in Infrastructure Investment
09:27: Challenges in Data Storage Investments
12:36: Addressing Macro Factors in Data Storage
16:26: Transition Risks and Talent in Infrastructure
18:25: Differentiation Between Private Equity and Infrastructure
20:22: Crossover with Credit and Concerns Raised by Investors
25:10: Long-Term Outlook and Sector Allocations
26:01: Consolidation in the Sector and Investor Preferences
27:39: Democratization of Private Assets and Interest Rate Impact
29:17: Renewable Energy Sector and Aspirations for the Future